When played on its keyboard, it has polyphony of 16 notes. But when played via MODX6 keyboard (connected via bulit-in USB), it has only 8 notes polyphony!

You are transmitting to the DX7 twice — most likely because you are using a 2-Part MODX Performance (which will utilize two MIDI Channels on which to address the MIDI OUT). The data generated OUT via MIDI by (most any) MIDI keyboard is designed to, when returned to that keyboard, properly trigger the keyboard that generated the data.

The tricky thing about your MODX is it is designed (by default) to transmit to multiple Parts simultaneously - each Part on its own MIDI Channel. You can actually be transmitting on as many as eight Channels at once (your poor DX7 would be reduced to a 2 note Poly instrument if you don’t learn how this works - particularly when you involve a DAW, like Cubase, in the MIDI routing.

The strategy you want to implement and follow is to generate data specifically for the DX7 and then, ensure that only one channel stream is sent on to the DX7.

If you want the MODX to also sound in response to key presses, you can, within your MODX Performance, create Parts that trigger the internal tone generator; and you will want to dedicate a MODX Part that is designed/ designated to Transmit OUT to just the DX7 (a Part slot designated for external Transmit only). This is done within your MODX Performance using the “Part Settings” > “Zone Settings”

You don’t mention which version Cubase you are using… (why this matters):
Your error could be in how you are setup to Thru MIDI data in your software (MIDI Track assignment).

A typical Cubase MIDI Track, when active, will record all incoming MIDI data regardless of the MIDI Channel. Yes, it then merges all data to each MIDI Track. It can also re-channelize that Track data to a specific MIDI Channel, as set by the Channel # on the MIDI Track’s Track Inspector.

For example, if you have a 2-Part MODX Performance selected on the MODX, you will likely be transmitting on both MIDI Channels 1 and 2. If additionally, you have this single Cubase MIDI Track set to receive data from the MODX and to Output that MIDI data on MIDI Channel 1, than both channel’s data will be ‘merged’ to Channel 1 — thus halving the polyphony of the DX7 as two Note-Ons are sent for each Note triggered.

To avoid this:
Set your Cubase MIDI Track’s Inspector Channel = “Any” (literally, “Any”) — this allows the MIDI data to arrive on any channel and be MIDI THRU’d back OUT on that same Channel it arrived on (no merging of Channel data).

As a rule when using the MODX as a MIDI Keyboard Controller for external devices, you should use the ZONE MASTER function to ensure what you are sending from your MODX. REMEMBER: the MODX is capable of using 8 MIDI Channels for itself, channels 1-8. Any of those eight Part slots can be assigned an internal or an external tone generator. A slot designated for external MIDI use can be any numbered channel you desire 1-16.

When the Zone Master function is activated, you can, on a Part slot by Part slot basis, determine whether that Part slot is triggering an Internal MODX sound, an External sound module (DX7), or both.
The Internal Part’s Channel number is the same as the MODX Part number
The External Part slot’s Channel number is your choice.

See articles here on YamahaSynth on “Zone Master” and it’s use.
See also articles on using Cubase.

Got it!

Thank you very much for great explanation, Phil! 🙂